Every month — if not week — brings new reports of allegations, settlements, and, in some cases, admissions involving the banking industry, many involving the largest and best-known banks. The law has attempted to address these problems, but has not done so successfully. Indeed, society...

In the emerging consensus view on reforming bank capital requirements, the need for increased regulatory capital and some form of crisis insurance are beyond doubt, as has been established in Caballero (2009). The present paper contributes to the ongoing debate concerning the proper composition...

Banks increasingly use short-term wholesale funds to supplement traditional retail deposits. Existing literature mainly points to the "bright side" of wholesale funding: sophisticated financiers can monitor banks, disciplining bad but refinancing good ones. This paper models a "dark side" of...

In this paper we stress-test credit portfolios of 28 German banks based on a Mertontype multi-factor credit risk model. The ad-hoc stress scenario is an economic downturn in the automobile industry that constitutes an exceptional but plausible event suggested by historical data. Rather than on a...

This paper studies the impact of bank regulation and taxation in a dynamic model where banks are exposed to credit and liquidity risk and can resolve financial distress in three costly forms: bond issuance, equity issuance or fire sales. We find an inverted U–shaped relationship between...

We develop a macroeconomic portfolio stress test that is specifically geared towards small and medium-sized banks. We combine a credit risk stress test which simulates credit impairments via a CreditMetrics type multi-factor portfolio model with an income stress test in the form of dynamic panel...

Our paper addresses firm size as a driver of systematic credit risk in loans to small and medium enterprises (SMEs). Key contributions are the use of a unique data set of SME lending by over 400 German banks and relating systematic risk to the size dependence of regulatory capital requirements....

The goal of this paper is to provide alternative approaches to generate indexes in order to assess banking distress. Specifically, we focus on two groups of indexes that are based on the signalling approach and on the zero in ated Poisson models. The results show that the indexes based on these...

We investigate financial intermediaries’ interest rate risk management as the simultaneous decision of on-balance-sheet exposure and interest rate swap use. Our findings show that both decisions are substitute risk management strategies. A higher likelihood of bank distress makes banks reduce...